Russia's state security service, the FSB, has accused British diplomats of spying in Moscow with the help of hi-tech electronic rocks. Steve Rosenberg in Moscow says that while Britain has denied any wrongdoing, the week's developments are causing some alarm in Russia.

The hi-tech rock allegedly used by British agents to store data

Going to a cocktail party at the British embassy in Moscow, just a day after diplomats there had been accused of spying, was a very odd experience.

The drinks evening had been organised weeks in advance for British journalists working in the Russian capital.

It was a chance to meet some senior embassy staff.

Now, suddenly, it was a chance to get the inside story on that fake rock.

Awkward exchanges

Upstairs in the ambassador's residence, the wine and the vol-au-vents were flowing freely, but the conversation was not.

All the journalists wanted to talk about, of course, was spying, which is precisely the topic the diplomats at the party wanted to avoid.

In contrast to the tight-lipped Brits at the embassy, the Russians I have been speaking to have been much more than willing to comment

It made for some awkward exchanges.

"So what stories have you been working on lately?" one diplomat asked me, a little naively.

"Er, British spies, actually," I replied.

"You know. Those imitation rocks packed with transmitters."

Before I knew what had happened, the conversation had been steered in a totally different direction.

"Oh, it has been chilly in Russia lately, hasn't it?" came the reply. An embarrassed British diplomat saved by the Moscow weather.

Cloak and daggers

In contrast to the tight-lipped Brits at the embassy, the Russians I have been speaking to have been much more than willing to comment.

Among them, Oleg Brykin, a retired KGB intelligence officer.

Oleg was not too impressed by the imitation rock packed with electronics.

He told me what espionage was like when he was in the spy businesses 30 years ago.

It sounded far less technological, but much more romantic, real cloak and daggers stuff. Instead of transmitters in rocks, Oleg used to leave messages for his agents in trees.

Once he left a container full of money under a bridge - not a good choice. The next day a steamroller came along and built a road right over it.

Down at the Duma, the lower house of the Russian parliament, the spy scandal was on everyone's lips.

They were chatting about it in the corridors, they were dissecting it in the canteen and they were discussing it in the hall.

Most of the MPs were angry.

Alarm bells

Curiously, though, it was not the spying aspect of this which seemed to cause most indignation.

You have to take a look at the political change that has been unfolding on Russia's doorstep

It was the allegations that apart from dabbling in espionage, British secret service agents had been funding Russian non-governmental organisations (NGOs) - everything from human rights organisations, to political foundations, or civil liberty groups.

And it is those claims that have set the alarm bells ringing in the Russian Parliament, the government and in the Kremlin.

To understand why, you have to take a look at the political change that has been unfolding on Russia's doorstep - a part of the world Moscow has always considered to be part of its sphere of influence.

In 2003 the so-called "rose revolution" in Georgia swept into power a pro-Western, pro-NATO government, one that was considerably more hostile to the Kremlin.

The following year in Ukraine the revolution was "orange" but the result was very similar. Street demonstrations helped topple a Russia-friendly regime and turn Ukraine closer to the West.

Political instability

In both cases, Moscow accused foreign powers of provoking people-power demonstrations and political instability through local NGOs and of using them as a cover to foment revolution.

So, to make sure nothing similar happened back home, the Kremlin began battening down the hatches.

First it created a mass youth movement loyal to President Putin. Then it turned its attention to NGOs.

There are hundreds of thousands of them in Russia - everything from charities helping the homeless, to groups pushing for penal reform.

But of most concern to the Russian authorities were those organisations committed to political change and human rights.

Pressure was exerted.

Russian politicians began accusing some of these groups of being fronts for Western governments.

Then, came new legislation, tightening controls over the activities of NGOs, and the way in which they are financed.

President Putin signed it into law earlier this month.

It has been condemned by the United States and by Europe as undemocratic, but with this spy scandal Mr Putin believes he has proof that he was right to be concerned.

Dirty money

I went along to one of the NGOs which Russian intelligence officers claim received dirty money from a British spy working out of the embassy.

Moscow Helsinki Group is one of Russia's oldest human rights organisation. It is hidden away at the top of a winding staircase, in a crumbling Moscow tenement.

Its chairperson, Ludmila Alexeeva, has been fighting for Russians' rights for more than 30 years.

In Soviet times, she was forced to leave the country because of her dissident activities. Now she fears history is repeating itself.

"After this spy scandal," Ludmila told me, "I have a feeling of déjà vu. The authorities are trying to choke democracy and a civil society."

While President Putin claims he remains committed to helping NGOs, Ludmila and her colleagues expect a Kremlin-orchestrated crack down on groups like hers which are independent of the state and receive money from abroad.

"If the West stands back now and lets the Russian authorities crush a civil society, it won't just be bad for people living here," Ludmila explained.

"Having such an undemocratic neighbour as Russia will be bad for the West, too."

From Our Own Correspondent was broadcast on Thursday, 26 January, 2006 at 1100 GMT on BBC Radio 4. Please check the programme schedules for World Service transmission times.